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Darling’s Deception and Disloyalty

Bear the following in mind, those Labour Party members intending to vote for David Miliband. There is a story in the weekend papers planted by a “colleague” of one of David’s major backers: Alastair Darling.  We must assume that David intends to reward Alastair Darling for his support, by re-appointing him as Shadow Chancellor. If so, then this story tells us a great deal about the economics at the heart of David Milliband’s campaign, but also about the personal qualities of the man that was Labour Chancellor, and aspires to be so again.

It is in the Financial Times bearing the headline “Darling kept Brown in the dark on deficit”:  a “former colleague” of Mr Darling reveals that the Treasury kept Gordon Brown in the dark about improvements to the deficit, so as to prevent further fiscal stimulus being undertaken in advance of the election.

The decision to deceive No 10 “in effect left a £7b present for his Conservative successor”. It is an extraordinary story for a number of reasons:

First, it reveals once again the audacity, and contemptible arrogance  – of the Treasury politicians/civil servants that leaked this story .

Second, it reveals the political gulf that existed between two of the most powerful politicians in government.

Third it reveals the weakness of a Prime Minister that must have known of Darling’s  disloyalty but could not bring himself to sack the Chancellor that he had gifted with that great office.

Fourth, and for me most disturbingly, it reveals the economic incompetence at the heart of the Treasury.

To explain: in 2009, according to the Bank of England, Britain’s economy suffered £140 billion of output losses. In other words, a giant crater of collapsed investment, output, unemployment and bankruptcies opened up within Britain’s economy. That crater has to be filled, if the economy is to recover.

If the private sector were willing to dig in and undertake the task of filling the crater, all the better.  But it is both unwilling and unable – for reasons to do with huge debt burdens, slow bank lending, a long history of de-investment, and a fear of risk.  In the absence of private sector activity, governments have to step in, and help fill the crater – as a way, amongst other things, of reviving the health of the private sector. So cuts in spending, or ‘fiscal neutrality’ as Darling and Treasury economists engineered in the March Budget, not only do not help recovery, they will expand the size of the crater, and exacerbate the now-inevitable double dip downturn.

Mark  my words, and hold me to them if I am proved wrong.

Furthermore ‘the markets’ –  those invisible forces before which our Treasury heroes, brave enough to leak to the FT, turn all weak-kneed and trembly  – ‘the markets’ want only one thing: economic recovery.

Again, you must believe me on this. I watched in 2005-6 as ‘the markets’ tried to blackmail the Brazilian public, who appeared to want to elect a trade unionist called ‘Lula’ as President.  The markets warned that the end of civilisation was nigh, that all foreign capital would be withdrawn from that country, and that therefore interest rates would rise on Brazilian bonds – unless the Brazilian people changed their minds. We should all be proud that Brazilians as a nation demonstrated a little more spine than the mandarins and politicians at the British Treasury. They honoured their democratic rights, defied ‘the markets’ –and elected Lula.

Lula turned out to be a good thing for ‘the markets’. They never looked back. Not that they ever did publicly apologise for their deceitful threats and contemptible arrogance.

Despite all-too-frequent stupidities, ‘the markets’ can see, as you and I, but not the Treasury can see – that in the absence of economic recovery, unemployment will rise, more companies will go bankrupt, output losses will rise, government revenues will fall, as both individuals and companies stop paying taxes. Then inevitably, the government’s debt will worsen and government bonds will become riskier.

‘The markets’ can see that, as sure as night follows day, when the economy recovers, when people are back in jobs and paying taxes, government revenues will rise, and  the bond markets will recover.

For that is all these bond investors wish for.

Finally what is most extraordinary about the story in the FT today, is that the leakers can’t see what I can see; that when the history of this period is written, when we look back on the disastrous consequences of the Treasury strategy  –  the guilty men will have confessed to an indictable offence,  in their own words, and on the front page of the FT.

Who would want such men in a Labour Shadow Cabinet?  Surely not the honourable and loyal David Miliband?

3 Comments

  1. Quietzapple says:

    Lies on the eve of Cons – National Liberal action against the British people seems most likely.

  2. Jane says:

    I approve of Alastair Darling’s actions. You may recall that he was Chancellor and was resistant to pressure from No10 and indeed Ed Balls for more public spending. He omitted to provide an up to date figure – so what. Don’t forget the last Chancellor did not even inform the Cabinet of his budget nor indeed the PM.

    Can I also correct you. Alastair Darling has made it clear he does not wish to stand for the shadow cabinet. This has been well documented – so your argument does not stand up.

    I really must laugh at you stating the present of the 7bn left to the new administration. Can you not just add the total deficit including of course the structural element which Coins is now providing. By the way, I am a labour Party supporter who for the first time in 45 years did not vote for the party at thye last election. I will return to the fold when David Miliband becomes leader.

  3. Matthew Stiles says:

    “By the way, I am a labour Party supporter who for the first time in 45 years did not vote for the party at thye last election. I will return to the fold when David Miliband becomes leader.”
    You are Jane Griffiths and I claim my £5.

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